Here is the week in review, with all of Friday’s critical levels drawn in. The market closed on the low today and below the critical 200-day line – a bearish outcome. The weekly and monthly candles are now bear bars and red.
We finally found support at the second support level mentioned this morning, 4404, near the Weekly Expected Move low. Bulls should be thankful for market makers, as there was a lot of blue sky below 4400 without them.
We know the market is overvalued and correcting. As such, it is also vulnerable to bad news. How a market reacts to news can be an indicator in and of itself. It is close to a bottom when the indexes stop going down on negative news. As the market keeps puking, we are not yet close to THE bottom.
The news would include Fed Governor Bullards comments yesterday, which were not well-received by the market or his colleagues:
“Federal Reserve officials, both privately and publicly, are pushing back against calls by St. Louis Fed President Jim Bullard Thursday for super-sized rate hikes and instead suggesting the central bank is likely to embark initially on a more measured path.” Source: Bloomberg.
And in the tradition of “Wag the Dog,” today, the Biden administration gave us another dose of fear porn about Russia invading Ukraine, which was not well-received by the markets or the Kremlin:
“The White House hysteria is more revealing than ever. The Anglo-Saxons need a war. At any cost. Provocations, disinformation, and threats are favorite methods of solving their own problems,” she wrote in a post on her Telegram channel. “Road roller of the American military-political machine is ready to go through people’s lives. The whole world is watching how militarism, imperial ambitions denounce themselves. And a propaganda brigade chaired by Bloomberg serving all this.” Source: Kremlin.
The market catches all the terrible news but ignores the pushback.
I will endeavor to put out the weekend video tomorrow. It will be necessary and positive for traders to breathe and digest all of this over the weekend.
While stocks may be tumbling, 2022 inflows into stocks – both institutional and retail – are soaring. According to EPFR data compiled by Bank of America, cumulative equity flows YTD in 2022 had hit a record $153bn, exceeding the pace of early-2021 (when the year started with $151bn in inflows, ahead of a record year of more than $1tn inflows). Who says it is lonely at the top? Somebody has to turn the lights off.
And to cap this otherwise dismal week, we got the sad January Consumer Confidence Report from the University of Michigan:
The monthly chart reminded me of the declining trend in President Biden’s approval ratings. There is an astounding correlation. But perhaps the report will help comfort the Fed that the economy will slow of its own accord. Unhappy and pessimistic consumers don’t spend much money. And they have less to spend with 7.5% (likely closer to 14%) inflation. Consumer spending is 75% of the economy.
A.F. Thornton